The “I” Factor

 As 2014 nears, the entire global economy is most critically and vitally dependent on the “I” factor (i.e.) "interest" rates. From time immemorial, over millennia and centuries, all global monetary policy, fiscal policy, finance, economics, commercial markets are predicated by interest rates. In addition, interest rates have always directly influenced deflation vs. inflation.

From any basic course in “Economics 101" or “Finance 101”, we learn that interest rates have a direct impact on Balance Sheet, Profit & Loss (P&L) Account and Cashflow Statement of government / public sector, corporate / private sector, products and services industries / sectors as well as academia, non-profits and individuals.

 

Source: Pat V. Sonti, Volunteer Mentor

The vast mountain of global $Trillion of debt, deficits, unfunded liabilities, trade imbalances, and Over-The-Counter (OTC) derivatives is primarily interest rate driven. Any slight imbalance or upward / downward adjustment in interest rates may have direct / indirect consequences on the entire global value chain of products, services, commodities including various types of asset classes (immovable, movable, currencies / liquid cash, stocks / securities, bonds, precious metals, etc.).

Source: www.gold.ie

There is no real “crystal ball” to either accurately or precisely predict what lies ahead for the global, national, regional, state, and local economies. However, beyond socioeconomic and ideological issues, it is important for prudent stakeholders (government-corporate-academia-individuals) to clearly understand, evaluate, and appreciate the highly integrated nature of the global economy and the intrinsic relevance of interest rates. Proper creation of awareness and information dissemination is paramount.

References:

1.      http://en.wikipedia.org/wiki/Interest_rate

2.      http://en.wikipedia.org/wiki/Interest_rate_derivative

3.      http://content.pncmc.com/live/pnc/corporate/pncideas/articles/Interest_Rate_Derivatives.pdf

4.      http://theeconomiccollapseblog.com/archives/the-441-trillion-dollar-interest-rate-derivative-timb-bomb

5.      http://www.richmondfed.org/publications/research/special_reports/instruments_of_the_money_market/pdf/chapter_16.pdf

6.      http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/12/27_Art_Cashin_-_Fed_May_Disastrously_Have_To_Reverse_Course.html